A question investors often ask when investing in Lending Club and Prosper loans is whether they should invest in 36 month loans, 60 month loans or both. This question up until recently was more difficult to answer because few 60 month loans had reached maturity. We’ve been able to analyze 36 month vintages for quite some time but 60-month loans only began in 2010 and initially it was at a very small scale. In this post we’ll dig into what the data says using NSR Invest and also provide other considerations to help answer this question.
According to NSR Invest, Lending Club has originated 791,826 36 month loans and 327,355 60 month loans as of Q2, 2016. As of Q2, 2016 Prosper has originated 390,782 36 month loans and 168,881 60 month loans. As a side note Prosper has also issued 1,614 12 month loans, but we will ignore these loans for this analysis since they have not originated 12 month loans since 2013. Our analysis will focus on a subset of these loans of fully matured vintages.
There are a few things to keep in mind as you go through this analysis:
- Generally loans of a longer term have higher interest rates to compensate for the additional risk.
- Both Lending Club and Prosper continually modify their underwriting models. What may have produced higher or lower returns in the past may not do so in the future.
- There are interest rate considerations that may affect returns. Since your money is tied up for longer with 60 month loans you may be better off if interest rates decrease over time. Vice versa if rates increase you aren’t reinvesting as fast in these new, higher interest loans.
Lending Club 36 vs. 60 Month Loans
First we’ll look at Lending Club 60 month loans using the following filter criteria. The same criteria will be used to our 36 month analysis with the exception being to only include 36 month loans.
- Issue date: 1/1/2010 – 8/31/2011
- Assumptions: Equally weight all loans at $1000
- All loan grades